Question 27.27. Mahlo is planing to diversify into the bakery industry. As a result, its beta should drop from 1.5 to 1.0 and the expected long-term growth rate of dividends will drop from 12% to 8%. The risk-free rate is 2%, the expected market risk premium is 10%, and the current dividend per share paid by Mahlo is $3.10. Should Mahlo complete the diversification into the bakery industry? (Points : 3.4)

No, stock price drops about $6.20. Yes, stock price increases about $14.26. Yes, stock price increases about $15.50. Probably. The stock remains the same if it diversifies into the bakery industry.